Management Accounting Report: Cost Analysis at Marks and Spencer

This report provides an in-depth analysis of management accounting principles and practices, using Marks and Spencer (M&S) as a case study. It begins with an explanation of management accounting, its essential requirements, and a comparison with financial accounting, highlighting the primary users of management accounting information within M&S. The report then delves into various management accounting systems employed, including cost accounting, inventory management, and job costing systems, along with the process of accounting reporting, covering budget reports, cost managerial accounting reports, performance reports, and account receivable aging reports. Furthermore, the report explores cost analysis techniques, calculating costs using both marginal and absorption costing methods, and includes income statements under both costing approaches. The report also discusses the advantages and disadvantages of different planning tools used for budgetary control. Finally, it compares how organizations, specifically M&S, adapt their management accounting systems to respond to financial problems, offering insights into strategic decision-making in response to financial challenges.

5

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................2
P1 Explanation of management accounting and providing the essential requirements of
different types of management accounting systems...............................................................2
P2 Explanation of various methods which are used for management accounting reporting. 4
TASK 2............................................................................................................................................5
P3 Calculation of costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs......................................................................5
TASK 3............................................................................................................................................9
P4 Explanation of the advantages and disadvantages of various types of planning tools used
for budgetary control..............................................................................................................9
TASK 4..........................................................................................................................................11
P5 Comparison of how organizations are adapting management accounting systems to
respond to financial problems..............................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
For the purpose of preparing reports of business operations it is necessary for organization to
follow a prescribed accounting system full stop Management Accounting system is one of the
forces from them. It helps the organization in taking short and long term decisions as it provide
various censorious informations to the management regarding the decision making in the
operations of business. It is used find a performance with the help of financial and managerial
data of organization. On the basis of Management Accounting system various organizations
make decisions regarding their running activities. Report is based on Marks and Spencer which
is a UK based multinational company dealing in food products, clothing, home products and
footwear having headquarter in London, England, UK. This report include various concepts of
Management Accounting such as types of Management Accounting system, method use for
accounting reporting, various techniques of cost analysis, advantages and disadvantages of
various types of planning tools and many more.
1

TASK 1
P1 Explanation of management accounting and providing the essential requirements of different
types of management accounting systems
Management Accounting can be defined as a process of using the various information of
organization including variance analysis budget report inventory report and many more for the
purpose of creating statistical and financial data which is very useful in the process of making
decisions for the purpose of running the operational activities of organization (Bailey, W.J. and
Samuels, J.A., 2018). Some time it becomes a confusing topic about Management Accounting
and financial accounting which are totally different from each other. The difference between
Management Accounting and financial accounting are given below:
Basis Financial Accounting Management Accounting
Users of data Financial data is used by
various external stakeholders
which include creditors,
suppliers and general public.
It focus on the diverse range of
information related to the
organization which is useful for
both internal as well as external
stakeholders. Management
accounting information is acquired
by financial accounting (Baker,
C.R., 2019).
Purpose Financial accounting focuses on
the measurement of profitability
and efficiency of complete
organization.
Management accounting focuses on
the measurement of disadvantages
of organization by developing
budget and variance analysis.
Report display It’s report can be seen by
income statement and balance
sheet.
It’s report can be seen by predicting
future making decisions obtained
from the financial accounting from
cash flow statement, budgetary
statement, financial report and fund
flow statements.
2

Primary users of management accounting information: Personnel management, shareholders,
employees and investors of organization are the primary users of management accounting in
Marks and Spencer (Bassani, G. and Cattaneo, C., 2017).
Management Accounting System: It can be defined as a process of analyzing both
financial as well as non financial information which plays an important role while planning and
decision making in an organization.
Principle of management accounting: Following are some principles of management
accounting which are considered by Marks and Spencer organization:
 Various information which are related to the evidence, statement, accounting and
reports are collected with the help of information of past and present with the
purpose of predicting future.
 It also help the organization in the calculation of return on investment.
 For the purpose of running the management of organization, all the required
information can be integrated by management accounting.
Management Accounting System
Cost accounting system: Marks and Spencer uses this system in order to find out the Per unit
cost of product. According to this they set the selling prices of products. In the process of cost
accounting system all the records related to the business operations are recorded which include
direct as well as indirect cost.
Inventory management system: this system is used for the purpose of evaluating the materials in
inventory by using various processes which include FIFO, AVCO and LIFO. It is beneficial for
Marks and Spencer organization as it involve the identification of selling prices, requirements of
products and any loss of products.
Job costing system: through this system data related to the cost of production is identified by the
organization for stop Marks and Spencer use this data for the purpose of identifying the accuracy
of its estimation process, any reimbursement for customers, setting prices of products and many
more (Bösch and et. al., 2019).
Price Optimisation system: this system is used for the purpose of identifying the demand of
customers as well as the most possible prices of product. It is analyzed that marks and Spencer
can increase the prices of their product based on increasing margin profit which is beneficial for
the system.
3

P2 Explanation of various methods which are used for management accounting reporting
Process of management accounting helps in the managing the performance of a company. From
a recent report it is found that the Marks and Spencer are using various Management Accounting
procedures as these reports are used by them for the purpose of planning regulating decision-
making and measuring the performance (Deegan, C., 2017). It is found that many important
decisions of an organization depend on these reports. Following are the explanation of such
reports:
 Budget report: while doing measurement of performance of organization budget
managerial accounting report plays an important role. It is found that at each and every
organization creates a overall budget for the purpose of understanding that Grand scheme
of their business. It is based on the previous experiences because under this organization
released all the sources of earnings and expenditure. A company always wants to achieve
the organizational goals and objectives in budgeted amount. It also guides the managers
of organization to offer best incentives to their employees cost cutting and renegotiate
terms with vendors and suppliers.
 Cost managerial accounting reports: managerial coast always help the organization in
the evaluation of cost of articles. Managerial accounting report considered material cost
labour overhead and any other added coast. The total of this amount is divided by the
amount of product sale. It can be sale to Tata cost managerial accounting reports for the
complete summary of cost related information. It provides a capacity to managers and
finding that difference of price of items and selling prices. This report managers
estimation of margins of profit. Hourly labour cost, inventory based and overhead cost is
of the part of cost managerial accounting reports (Deruyck and et. al., 2017). It provides
the clear image of all the expenses which word made by the organization under a period
of time.
 Performance reports: for the purpose of reviewing the performance of individual,
various teams and the complete organization, performance reports are created. In huge
organization various performance reports of various departments are also made for the
purpose of analysing the performance of a specific department. It helps the managers of
organization in making key strategic decisions which are helpful for the future growth
and development of business. Because of this report management of organization takes
4

the decision of rewarding and incentive for employees on the basis of their performance.
Performance report helps the organization in differentiating the employees on the basis of
their performance. According to this, management of organization also arrange training
and development program for low performing employees (Duff and et. al., 2020). The
role of this report is vital for an organization to keep an accurate measure of its strategy
towards is its mission.
 Account receivable aging report: if any business organization is depend on the extending
credit then account receivable aging report plays an important role in their operations as it
helps the organization in recognising the defaulters by breaking down the clients
remaining balances into a specific period of time. It also finds various issues in process of
collection of a business organization. If the company found a number of defaulters in
account receivable aging report then the organization have to complete transformation to
tighter credit policies as cash flows in critical to the operation of an e-business. The
accountant will return of all the bad that of the organization. It is necessary for an
organization to know about who owns the money of organization.
 Other managerial accounting reports: along with above mentioned report some reports
are are also important for every business organization which include project reports,
order Information Report, competitor analysis, and many other. These reports are made
by professionals (Fiorillo and et. al., 2019). If the organization is going to take decisions
it is necessary for them to take a site on accounting reports so that they can make and
develop Strategies and decisions in an effective and efficient manner.
TASK 2
P3 Calculation of costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs.
Below mentioned table shows the complete calculation of per unit cost for westfield
company. The data or amounts showing in the table are self sourced as an example.
Particulars Variable Cost Absorption
Cost
Direct material £ 270 £ 270
Direct Labour £ 47 £ 47
5

Variable manufacturing Overhead £ 30 £ 30
Fixed Manufacturing Overhead £ - £ 22
Product Cost Per Unit £ 347 £ 369
After calculating per unit cost of production, the organization is required to calculate
marginal costing. Below mentioned table is the example which is showing calculation of
marginal costing. Data available in the below table is self sourced as example for showing the
same.
In the books of Marks and Spencer
Income statement under marginal costing
Particular Amount Amount
Sales £
10,000,000.00
Less: variable Expenses
Beginning Inventory £
-
Add: Cost of goods manufactured
Direct labour £
1,700,000.00
Direct material £
4,100,000.00
Variable manufacturing overhead £
900,000.00
Goods available for sales £
6,500,000.00
Less: Ending inventory £
-
Variable cost of goods sold £
6

6,500,000.00
Total variable cost £
6,500,000.00
Contribution margin £
2,700,000.00
Less: Fixed Expenses
Fixed Manufacturing overhead £
250,000.00
Total Fixed Cost £
250,000.00
Net Income £
2,450,000.00
For the purpose of calculating the absorption cost, organizations have to make absorption
report. Below mentioned table is showing the complete calculation of identifying the absorption
costing and all the date or amounts are self sourced for the purpose of presenting the example of
finding absorption costing of organization.
In the books of Marks and Spencer
Income statement under absorption costing
Particulars Amount Amount
Sales £
10,000,000.00
Less: Cost of goods sold
Beginning inventory £
-
Add: Cost of goods manufactured
Direct labour £
1,700,000.00
7

Direct Material £
4,100,000.00
Direct Expenses £
900,000.00
Fixed Manufacturing overhead £
250,000.00
Goods available for sales £
6,650,000.00
Ending inventory £
-
£
6,650,000.00
Gross Margin £
2,450,000.00
Less: Selling and administration expenses
Administrative Overhead £
-
Selling and marketing overhead £
-
£
-
Net Income £
2,450,000.00
Below mentioned table is prepared for the purpose of reconciliation of costs. It is also seld
developed.
Particulars Amount
Profit under margin costing £
2,450,000.00
Adjustment for fixed portion in closing inventory £
8

-
Profit under absorption costing £
2,450,000.00
From the above taken example, it is found that, there is no closing inventory in the organization
which state that there is no any adjustment is made related to the fixed cost portion in the
inventory (Hasibuan, R.P.S. and Syahrial, H., 2019). Along with his, it is also found that the
profit under marginal costing and absorption costing are evaluated as same because of the
absence of closing inventory. So, it is suggested to the organization to do prepare budget on he
basis of their costs. The costing is also showing that the organization is highly successful. The
sales made the organization are highly targeted For the purpose of compensating the values
assigned towards the profit which will help in the generation of high sales of products in the long
run.
TASK 3
P4 Explanation of the advantages and disadvantages of various types of planning tools used for
budgetary control.
A budget approximately estimate the results of future of a business with the financial
position of firm for a specific period of time or it can be said at one or more financial year. In
simple words a family is stated that the budgets are prepared for estimating the future for making
Future Plans performance measurement needs controlling process and making innovative ideas
regarding the new products and services (Johanson and et. al., 2019). It also enables the business
in knowing about the financial needs according to time. The organization who is already
reviewing their budgets they are required to keep close eye on the reality so that they can assist
the variances in the actual result as earlier planned. Budgetary control has both advantages and
disadvantages on organization. Some of or advantages of budgetary control on Marks and
Spencer are given below:
Advantages
Maximization of profit: main focus of budgetary control is only on the maximization of profit of
the business organization. For the purpose of achieving objectives, it is necessary for
9

organization to do proper planning and coordination between various departments so that they
can perform the functions in an effective and efficient manner. Because of budgetary control the
organization have proper control on capital and revenue expenditure as. Because of this they can
use resources in a proper and best possible way.
Coordination: budgetary control creates outline for All the departments working in an
organization. If the organization want to achieves the the desired goals and objectives so it is
necessary for them to do the work with the proper coordination of department (Jordão, R.V.D.,
2017). For the purpose of achieving budgetary target of organization it is necessary for all the
executive and subordinate to co-ordinate with one another.
Specific aim: top management makes and develop plans, policies and goals of organization. It is
necessary for organization to put all the efforts together to reach on the common goal of
organization. Every department makes sure that their target should be achieved in an effective
and efficient manner. The efforts put by various departments are only with the purpose of
achieving some specific aims. There is no any specific aim then the efforts of the complete
organization will be counted as waste.
Disadvantages
Uncertain future: budgets are always future oriented. But it can be used limitation for the
organization as the future prediction may not always comes true. The future is uncertain and the
situation which is assumed to prevail in future make change (Modell, S., 2019). A little bit
change in the future conditions can destroy the whole budget of organization. It may also destroy
all the preparations which were made by organization for the purpose of achieving their desired
goals and objectives. It is also found the Tata feature and certain it is decreased the utility of a
budgetary control system.
Discourage efficient persons: every employee or person of organization has assigned some
targets under the budgetary control system. Achieving the target is the only tendency of people
of organization. There are various efficient person in the organization which can exit the targets
but it will also make feel them content by reaching the target (Oesterreich, T.D. and Teuteberg,
F., 2019). So it can we say that budgets serve as constraints on managerial initiatives.
Conflict among different departments: sometimes it is also found at budgetary control system is
related to the creation of various conflicts among the functional departments of organization.
Every department think only about their department goal but not about the business goal. For the
10

same purpose every department wants to get maximum collection of funds which may arise
various conflict among various departments of organization.
TASK 4
P5 Comparison of how organizations are adapting management accounting systems to respond
to financial problems
Today's world is the full of competitive environment and Management Accounting
techniques. Some of the techniques helps the organization in adopting continuous changes with
environment. It also helps the organization in solving the financial problems. Marks and
Spencers r are continuously focusing upon the prophets of finance by applying various
accounting techniques (Shauki, E.R. and Benzie, H., 2017). They use Management Accounting
as a benchmarking tool pointing out the key financial areas where the company can help the
financial managers in order to gain more funds for organization and solving the problem of
finance. What the purpose of improving the complete standard of operations practices of marks
and Spencers, Management Accounting helps for the same. It also work as a source for
streamlining internal benchmarking, measurement of financial performance are the various point
which are considered as the important factors for the success of large MNCs such as marks and
Spencer. With the help of Management Accounting, the management of organization find a
sound monitoring facility for the financial performance as comparison to their other competitors
which include Add, Tesco and many more. Management Accounting system works as a sound
system in the governments of financial in various MNCs such as a marks and Spencer.
One more technique used by Marks and Spencer is balanced scorecard which works as a
illustrative model for the purpose of evaluation of financial performance of organization. It plays
an important role in improving the overall performance and sustainability of complete
organization. The software of Management Accounting used by Marks and Spencer is providing
a battery scope for the purpose of improving financial decision making (Özcan, A., 2020).
Before extending the credit limit the financial managers and Accountants easily view the
profitability position of organization and this will work as the growth and development factor of
business operations. There are various factors which affect the financial performance of
organization which include market share, EBIT, ROC, ROE, economic value added and many
11

more. Management Accounting techniques are helping the marks and Spencer Organization in
overcoming the conventional short term financial issues which are currently face by Marks and
Spencer. At last it can be said that Marks and Spencer will be able to collect sustainable financial
information by using financial statement for effective operational practices in the comparison of
other international competition organization such as Track and Asda.
Marks & Spencer is using financial governance for the purpose of knowing and
developing governance framework, so that they can fulfil the needs and requirement of their
brand and deliver long term sustainable, profitable growth to colleagues, investors and
communities in which they are operating. Asda is using financial governance in making strong
relationship with their stakeholders.
KPI is helping Marks & Spencer in making various business strategies whereas Asda is
using KPI for the purpose of making market strategies.
CONCLUSION
From the above report it is concluded that Management Accounting plays an important role
in organization in order to achieve their goals and targets as Management Accounting decide all
the findings and budgets for all departments and complete organization. It helps the organization
in making plans, measuring the performance, raise the responsibility, provides real ability,
increase efficiency and many more. Furthermore it is analysed that there are various methods
which are used for the management accounting reporting which includes budget report, post
managerial accounting reports, performance report, account receivable aging report and many
more. Along with this the above-mentioned report is showing the complete calculation of cost
with proper practical example. In addition to this report is also showing various advantages and
disadvantages of various types of planning tools used for budgetary control. It is also found that
marks and Spencer are making a huge amount of profit by controlling their post and providing
good services to their customer for the purpose of achieving goals and objectives of their
organization. Their continuous growth is the the result of various strategies made by their HR
department. Also they are getting financial funds through various sources which include
investors various stakeholders and others.
12

REFERENCES
Books and journal
Bailey, W.J. and Samuels, J.A., 2018. Analyzing Two Investments—An Instructional Case to
Introduce Basic Financial Accounting Concepts. Issues in Accounting Education, 33(4),
pp.47-56.
Baker, C.R., 2019. What can Thomas Jefferson’s accounting records tell us about plantation
management, slavery, and Enlightenment philosophy in colonial America?. Accounting
History, 24(2), pp.236-252.
Bassani, G. and Cattaneo, C., 2017. Rilevazione del gap tra DRG price e internal cost:
implicazioni di case-mix accounting. Rilevazione del gap tra DRG price e internal cost:
implicazioni di case-mix accounting, pp.13-31.
Bösch and et. al., 2019. Extent and costs of forest-based climate change mitigation in Germany:
accounting for substitution. Carbon Management, 10(2), pp.127-134.
Deegan, C., 2017. Twenty five years of social and environmental accounting research within
Critical Perspectives of Accounting: Hits, misses and ways forward. Critical Perspectives
on Accounting, 43, pp.65-87.
Deruyck and et. al., 2017. Accounting for the varying supply of solar energy when designing
wireless access networks. IEEE Transactions on Green Communications and
Networking, 2(1), pp.275-290.
Duff and et. al., 2020. The role and impact of professional accountancy associations on
accounting education research: An international study. The British Accounting
Review, 52(5), p.100829.
Fiorillo and et. al., 2019. Accounting change negli enti locali: quali condizioni per il
miglioramento nell'ottica gestionale?. Accounting change negli enti locali: quali
condizioni per il miglioramento nell'ottica gestionale?, pp.59-78.
Hasibuan, R.P.S. and Syahrial, H., 2019, August. Analysis of the implementation effects of
accrual-based governmental accounting standards on the financial statement qualities.
In Proceeding ICOPOID 2019 The 2nd International Conference on Politic of Islamic
Development (Vol. 1, No. 1, pp. 18-29).
Johanson and et. al., 2019. A conceptual framework for integrated performance management
systems. Journal of Public Budgeting, Accounting & Financial Management.
Jordão, R.V.D., 2017. Performance measurement, intellectual capital and financial
sustainability. Journal of Intellectual Capital.
Modell, S., 2019. Constructing institutional performance: a multi-level framing perspective on
performance measurement and management. Accounting and Business Research, 49(4),
pp.428-453.
Oesterreich, T.D. and Teuteberg, F., 2019. The role of business analytics in the controllers and
management accountants’ competence profiles. Journal of accounting & organizational
change.
Özcan, A., 2020. Implementation of Time-Driven Activity-Based Costing System in the
Manufacturing Industry: Evidence from Turkey. In Management Accounting Standards
for Sustainable Business Practices (pp. 272-283). IGI Global.
Shauki, E.R. and Benzie, H., 2017. Meeting threshold learning standards through self-
management in group oral presentations: observations on accounting postgraduate
students. Accounting Education, 26(4), pp.358-376.
13